The Historical Evolution of Financial Exchanges

Abstract

The historical dynamics of financial exchange formation and closure are analyzed for a sample of 19 countries from 1855 through 2010. We focus on the economic, technological, and regulatory factors that jointly determine the observed pattern of financial exchanges and whether those factors are consistent with existing financial theories in a time-series setting. The results suggest waves of formation and closure primarily driven by underlying structural change, not business-cycle fluctuations. We find that exchange births are positively correlated with economic growth and commodity booms, while closures are associated with advances in communications technology, such as telephone and the Internet, and heightened regulation, such as the 1934 Securities Exchange Act and state-level blue sky laws in the United States and the 1963 Stock Transfer Act in the United Kingdom.